If you’re like most business owners, you started small—very small. When you were first starting out it might have been just you. Then you may have added a few employees. You started to turn over some profits, revenue and cash flow became steady, and now you’re thinking of expanding. Yet, with all of the day to day maintenance of your business and management of your continued growth, it can be overwhelming to think about expanding. In this post, we’ll provide some key questions and considerations to help you sort things out and see if you’re ready.
6 Things to Consider When Expanding a Business
After seeing some results, it’s natural to want to expand, but expanding prematurely can easily drown a business. Here are six things to consider to determine whether your business can take on the costs and burdens of expansion.
1. Are You Meeting Your Goals?
If you aren’t surpassing or at least reaching your current goals, it probably isn’t time to expand. Even if you have great brand recognition, and your company has a good head on its shoulders, and even if your business is growing—if it’s not growing according to your goals, expansion might not be the best decision.
You may instead want to invest some time into finding ways to meet your goals or to assess and readjust your current goals. Sustained business growth relies on the ability to set appropriate goals, and meet them in a timely fashion.
In addition, meeting defined objectives build company confidence and give you an advantage when looking for investors. Investors love companies that can show a history of defined and controlled growth.
2. What’s Your Cash Flow Like?
Growth brings money into your business, but it also costs money to grow. Regardless of your situation, be prepared for the possibility that you may need to put the business on your back financially until the sales catch up with the new investment.
Remember, revenue alone doesn’t make a functioning business. As you know from owning a business, revenue and profits are two very different things. Before expanding you need to consider whether your business is better structured to generate revenue or profit. If it’s better geared for profit, then keep considering expansion. However, if your revenue minus variable costs hardly yield a profit and expansion won’t relatively change those numbers, expansion might be too risky.
3. Is Your Business Scalable?
A scalable business essentially means that increased revenues cost less to deliver than current revenues. You might be thinking, is it possible that that’s the case for any company? What scalability really means, is that the resulting profits from an expansion FAR outweigh the costs of growth. Businesses will always have operating costs, but scalable businesses try to keep their variable costs—or the costs incurred by each customer they gain—low.
4. How is Your SEO and Local Marketing?
The first business you start is typically in your local area or niche. You have a built-in network of family, friends, and peers that may have helped you to get off the ground and start obtaining customers. The longer you are around, the more people there are who are verbally referring you to friends, sharing their experience on review boards, and tagging your accounts on social media.
Increased verbal discourse doesn’t just come from family and friends, it also comes from providing a quality product or service. People share their experiences with a company because it’s either incredible or miserable; and if you’re getting leads and conversions, it must be the former.
However, in a new location, you might not have the same advantages. You may have to build your network from scratch. You may not be as familiar with the new territory into which you have expanded. You may need to get to know a slightly different demographic within your target audience. It’s important to consider your SEO and location-based marketing abilities, as these will be important when growing your new location and building awareness around it
5. Are Your Head and Your Heart In It?
Business is about the bottom line. It’s a game of quotas, deadlines, and numbers. When it comes to surviving an expansion though, it’s not just the bottom line. There’s a reason Michael Jordan is the best to ever play the game, despite being cut from his high school basketball team. Yes, it’s cliche, but sometimes there’s a reason for cliches. Expanding is difficult, and will present many obstacles on your way to a successful expansion, which is why you need to be more than business savvy. If you’re expanding solely for the economic opportunity, it may be difficult to find the motivation to push through some of the challenges that come with expanding and managing another chunk of employees.
6. Does Your Team Share Your Values?
When you look five years into the future, can you see yourself working with the same core staff? Are they invested in getting the business to the next level? An expansion is much easier when your team shares and retains the same core values.
Growth happens more fluidly when all “human elements” are in place. Take a look at your current team. Do you have those people who can lead, inspire, and manage themselves and others? Are they masters of their trade, or do they at least want to become one?
Take these considerations seriously. Hopefully, you made it through this post and are still excited by the prospect of expansion! It can be a very rewarding and profitable process if you’re ready. If you feel like you are coming up short on some of the criteria to expand, that’s okay too. That doesn’t mean your dreams of expansion are crushed. Rather, you’re better equipped to fulfill your desire to expand in the future. Good luck!
